00:04:25 · Christoph Klink
[00:04:25] S1: Yeah. I think what we're what we're seeing is exactly that that not a lot of new investors, emerging managers have grown into it. Right? So in a healthy ecosystem where people are starting new funds, where people are spinning out of their own funds to start their own new fund, you would always see small managers growing into it, and they usually don't start raising a growth stage fund. They'll usually start raising a pre seed or seed fund, start deploying with a relatively small fund, deploying relatively small tickets, and are actually going after those companies there. And I think in the tough market environment, it's not only tough for founders, it's also tough for people that are starting funds that we've seen essentially over the last four years. That number of new funds being set up has certainly dropped. So, I think the tough thing is always you always have to keep in mind that the market behavior we saw in 2020, 2021, and somewhat into 2022 also wasn't healthy, right? So, you can't take that as a baseline. So, throughout the entire report, we always try to take the baseline of anything before that peak, which is probably conservative, right? Because we should have evolved further in the sophistication that we have as an ecosystem since what happened between 2014 and 2019, right? But I think that reloading of that lower tier of investors hasn't happened. There's a lot fewer people that have set up their own funds than the first funds. And then at the same time there's some that have grown out of the very early stage, and then there's some that have just dropped out and are not active anymore, or are simply taking longer to fundraise. So, it's also stretching that deployment out, and I think that overall leads to fewer deals being made. At the same time, what I also found very interesting is that in those companies that actually make it, that are very, very successful, we called them rocket ships, which we we thought would be a good term for companies that were started since 2020 and already became unicorns. They... On average, they take less than three years to actually get there, which compares to seven point two years before 2020. So they're very, very fast, like a rocket ship. They on average have seven investors, almost twice as many investors on board of their cap table when they raise their seed round.
00:06:50 · Christoph Klink, Sebastian Johnson
So it's not only more capital concentrating, it's also more consensus, it seems, building between investors. It's more investors hugging on to the same companies that are doing really, really well. [00:07:03] S0: And why do you think that is? You know, I know that we... In the report, you talk a bit about jets and juggernauts. I think we can go into that a little bit. But when you talk about some of those early stage rounds where there's over consensus, is it because actually some of these companies since 2020 are able to experience much faster revenue growth? They're seeing much more traction. Is that a reason why? Or is there maybe just like a greatest feat? Like, is it just because there's more consensus thinking in venture?
00:07:31 · Christoph Klink
[00:07:31] S1: It's an excellent question. We've been asking ourselves that question as well. Right? Because what what you see is quite striking. Right? I think one of those those elements that we try to understand is indeed what are these companies like? Right? Because when we talk about the fast growing successes, we very, very often look at the lovable, the legoras of this world. We look at those companies that grow their revenue at mind boggling speed. Looked at those 33 companies that we called rocket ships and we said there's essentially two different kinds of them. There's jets, which are the lovables, the legoras of this world that are actually growing their revenue base at a very, very fast pace. They're quite lean. They're AI first and usually built by relatively young founders. But then there's a different tier which we call juggernauts, which are companies like the Mistral's of this world, like the Halcyx of this world, like the Proxima Fusions of this world, that are a lot harder to build from a technology point of view. So they're deeper rooted in technological differentiation and less deeply rooted in just pure execution of growth. They take longer for the first product to ship. If you're building a fusion reactor, it's very unlikely you're gonna actually see hockey stick growth on year one and a half. So, takes a lot longer. You're gonna have to raise a lot more capital upfront. And they're being built by more experienced, slightly older founders that often, way more often come out of academia and some of the big labs like DeepMind for instance. And I think in those two distinct cases what you see is for the Jets these markets often become fiercely competitive. Because it is from a technology point of view it's not easy, but it's relatively more easy to imitate what they are building now in today's age. And so it becomes all about execution. And there's in some markets there's dozens of players that are going after the same market and it's really about those that are showing early on those breakout success metrics. And then, I think capital just accumulates there. On average, they raise new rounds every eight months. Every eight months, that's mind boggling speed. For the Juggernauts, they raise a lot more capital at an earlier point.
00:10:12 · Christoph Klink
So when you look at average round sizes or median round sizes, then the median seed round and series A rounds for those Juggernauts are pretty much twice as large. So median c is at 16,000,000, median series a is at 60,000,000, which is two to three times the round sizes that we see in in the jets. And I think for actually bringing that capital to the market, it either needs what we spoke about a little bit earlier big US funds, big miners list funds, and or it needs collusion between European funds. And interestingly those juggernauts have way higher share of European capital in it. Where I guess there may be some European sovereignty thinking in it as well where we're just as Europeans, we're we're trying to to hold together to actually make those successes that we see stand out even more.
00:11:09 · Sebastian Johnson
[00:11:09] S0: Yeah. It's really interesting. It's like, yeah, to to to to raise the money from Europe, you almost need everybody to give a little bit of money. It's like a it's a it's like a crowdfunding from venture. And, yeah, I don't know. It's really interesting. It's... And especially on the it's like the the fact that these companies are becoming unicorns really quickly, especially for juggernauts. And maybe it's just because they need that much capital. Right? And maybe unicorn is not, like, a very good term to describe them because normally unicorn did... You know, it's like a badge of honor that you've got to a certain stage in your journey. Actually, the reality is if you need $500,000,000 in compute to prove anything, you're gonna be a unicorn by default. And, actually, maybe unicorns is not the right the right term, especially for those juggernauts where it's like you you know, they need the capital just to, like, validate an MVP. Right? You know? It's like a... The the... I think the the distinction that you've made is really interesting because it does highlight how fundamentally different these two types of businesses are. But when we look at the analysis, we just, like, bucket them all in the same thing. We're like, oh, great. A unicorn here, a unicorn there. Wildly different profiles.
00:12:18 · Christoph Klink, Sebastian Johnson
[00:12:18] S1: Very much. And I think what what we haven't seen before is those juggernauts starting to exist in Europe. Right? And the... One of the one of the the areas where we're also seeing that is before 2020, we didn't see Deca coins. Now we've seen 13 DecaCoins in Europe, right? And that's something that we haven't seen before. Yes, there's a bit of inflation in it, but other than that, it really is a different quality of company and a different kind of size of outliers that we that we may be seeing there. And I think that's a great sign of how European tech's maturing, actually, and how it is possible. Most of us have always said that. Right? It is possible to build great outcomes in Europe. It may be harder. Maybe. But it actually is possible. And now we're seeing more and more of those pinpoints that are showing that it actually is. [00:13:10] S0: Do you think there'll be a split as we move forward on the Decacorn layer between those jets and those juggernauts? I think about... When I'm thinking about some of those recent Decacorns, Lovable, the ICI, Bending Spoons, supposedly Legora. I don't know. I'm not... Actually, it seems fairly balanced, Helsink. I don't know. Do do you see a world in which Europe ends up doing one thing really well over the other?